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We are also rapidly developing our innovative idea of Challenge Funding. Challenge Funding invites groups to compe...
We are also rapidly developing our innovative idea of Challenge Funding. Challenge Funding invites groups to compete for public funds to improve local services. That way the quality and value for money of public services is improved.

In the first Single Regeneration Budget Challenge Fund bidding round, every £1 of public money attracted another £1 of private funding. £250 million has been made available for the third and fourth bidding rounds for the Single Regeneration Budget Challenge Fund. This will help regenerate many areas, including inner cities. And over £300 million of Challenge Funding will be made available to speed up the transfer of deprived housing estates to housing associations and other private landlords.

Challenge funding has enormous potential for projects of all kinds. My RHF the secretary of state for the environment is considering more challenge funding for a wider range of local authority capital provision, and will be making an announcement later this week.

Challenge funding ensures the best possible projects get the money, while fostering genuine local commitment to the project.

Budget strategy

Public spending as a share of national income varies from year-to-year but under this government's policies over the past sixteen years the trend is downward.

In the mid-1970s, total public spending peaked at 47 1/4 per cent of national income. The next peak reached 45 1/2 per cent in the early 1980s and the last peak was 43 1/2 per cent in the recession of the early 1990s. I now expect total public spending to be 42 per cent of national income this year.

When I became Chancellor two and a half years ago I said we should aim to push the ratio below 40 per cent and keep it there.

The decisions I am announcing today will achieve that aim. The ratio will be below 40 per cent from 1997-98 onwards. That is far below the ratio in any other major European country. Controlling public spending is crucial to our goal of making the economy more successful and the enterprise centre of Europe.

I have now taken £53 billion out of projected public spending in my three Budgets. I judged this necessary to reduce government borrowing following the international recession of the 1990s.

Even with the extra money for schools, hospitals and the police, I now expect planned public spending to be kept broadly unchanged in real terms over the next three years.

When we first set out our public spending control totals three years ago, most of the pundits did not believe we would stick to them. The doubters have been proved wrong.

Not only have we stuck to our plans, I have managed to reduce them again, for the third year running. Next year, the control total will be £3 1/4 billion below the level set in last year's Budget.

That is £12 billion below the level we expected it would be for that year when I became chancellor.

Having carefully reviewed the latest projections for public borrowing in the light of those decisions I have concluded that we can now return to the task of starting to cut taxes again. I am able to make tax cuts broadly equivalent to the spending reductions, with government borrowing still falling to zero by the end of the decade.

After the Budget measures are taken into account I expect the PSBR to continue to fall at roughly the rate we have now achieved in the last 2 years. I expect it to fall from £29 billion this year to £22 1/2 billion in 1996-97 and £15 billion in 1997-98. Broad balance should be reached after a further 2 years. The financial deficit is now expected to be close to the Maastricht reference level of 3 per cent of GDP in 1996-97, and to fall well below it in subsequent years.

So fiscal policy will remain tight. That is why the measures in this year's Budget are economically and socially responsible. I have made clear all along that every Budget I deliver will be dominated by the long-term interests of the British economy.

Let me now turn to my tax proposals.


I have had to consider carefully where tax cuts might fall. Since 1979, this government has shifted the tax burden away from direct taxes, which fall on income and employment, and towards indirect taxes on spending and consumption. This is the best way to encourage enterprise and investment and to improve the long-term performance of the British economy.

Before moving on to direct tax, let me run through my proposals for indirect taxes. Landfill tax

Last year I proposed a new Landfill tax, a charge on the disposal of waste in, for example, tips and old quarries. This will come into effect on 1 October 1996. It will be charged at a standard rate of £7 per tonne and a lower rate of £2 for inactive waste.

This is a tax on waste in order to reduce the tax on jobs. The money raised by the Landfill tax will allow for a matching cut in the main rate of employers' national insurance contributions by a further 0. 2 per cent to 10 per cent from April 1997. This will cut the cost of employment by £1/2 billion and make it cheaper for businesses to create new jobs.

Next, I intend to stick to my commitment to raise road fuel duties by at least 5 per cent on average in real terms. From 6. 00 pm this evening, tax on petrol and diesel will rise by 3 1/2p a litre. I also plan to increase the tax on super-unleaded petrol by a further 4p next May. This reflects its higher emission of pollutants such as benzene and the dangers to the revenue of switching from leaded petrol. Despite these increases, petrol prices in this country should remain lower than in any other major European country.

Last year I froze the duty on gas used in road vehicles, that is liquid petroleum gas and compressed natural gas, pending further work on their impact on the environment. Studies since then have confirmed these are relatively clean fuels. The government would like to help encourage further use of these fuels, and I propose to reduce duty on them by 15 per cent.

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